Ladies and gentlemen, welcome to Capgemini 2022 H1 results conference call. I will now hand over to Mr. Aiman Ezzat, CEO. Sir, please go ahead.
Thank you. Good afternoon, good evening, everyone. Thank you for joining us for this call. I'm joined today by Carole Ferrand, our CFO, and Olivier Sevillia, our COO. Our strong H1 results really illustrate the relevance of our strategy and market positioning. H1 revenues crossed EUR 10 billion, growing at constant currency by 18.5%. As you can see, an acceleration in Q2 at 19.3%. Our bookings are robust, growing at 22% at constant exchange rate with a record H1 book-to-bill of 1.09. After a very strong Q1, Q2 is again very healthy, with a book-to-bill at 1.11, reflecting strong sales dynamics and positioning us for sustained top-line growth. I can say the momentum is definitely there.
The operating margin at 12.2% is improving by 20 basis points in spite of the high salary inflation, sustained investment in talents and offerings, and the resurgence of some pre-COVID costs. These were more than compensated by the pricing and higher value-added offering mix that we have on the market. The normalized EPS increased by 36% year-on-year. That's supported by a 50% increase in net profits. Finally, free cash flow is positive in spite of significant working capital increase. That was, of course, anticipated, driven notably by strong top-line acceleration and a high bonus outflow in the first half. We are clearly well-positioned around the strategic needs of our clients and continue to gain market share globally. Now, if you look a bit at the performance, you know, by region, it is strong across the board.
We have solid double-digit growth in all geographies, businesses, and sectors. In Q2, all geographies have either maintained or accelerated their growth rates in spite of a more demanding baseline and minimal impact from acquisitions. In this impressive H1 landscape, U.K. reports a remarkable 23% constant currency growth, while France posts the strongest acceleration. We also continue to reap the benefits of our expansion plan in Asia-Pacific and Latin America with more than a 40% increase in H1, supported by both strong organic growth and targeted acquisitions. All business lines posted double-digit constant currency growth rate, and I have to say the 30% growth in Strategy and Transformation is a clear indication of our positioning at clients on their most critical priorities. Growth is also broad-based in terms of sectors with Q2 acceleration, notably in financial services, energy and utilities, and services.
Now the performance results from the combination of three items. First, our clients. They are increasingly relying on technology across the value chain of the company to drive both innovation, operation, but also client relationship. This is not anymore a cost play, but a growth and profit play. Putting it simply, our services represent an increasing share of clients' investments, and we are capturing through that more large end-to-end transformation deals. We also have a world-class innovative portfolio that's really positioned around our clients' need. Our leadership position in Intelligent Industry, our advanced value proposition in Customer First, and our strong positioning Enterprise Management with an industry focus meet our client expectation. Cloud, data, AI irrigate everything. These technologies are today at the heart of every business transformation, and this is supported as well by a very solid technology partnership, notably with the hyperscalers. Last but not least, our talents.
We continue to broaden our talent base, adding an additional 12,000 people in Q2 to cross the 350,000 mark. This is up 22% year-on-year and illustrate our ability to attract, grow, and retain the best talent in a still challenging market. We are continuously investing in building and upskilling our people, as well as adapting our approach to talent management. The share of women in our employees has continued to increase in H1, and I'm proud to say that we have been awarded several times in recent weeks for our efforts in the area of LGBTQ+ inclusion. Now, this combination of strengths, meaning strong demand, world-class portfolio, and great talents, is driving strong top-line growth, as illustrated by the 15% organic growth in the last 12 months, and clearly positions us as a strategic partner of our client CXO.
Now, this underlines our confidence for sustained growth in the coming years. Of course, we are closely watching the environment. We do not see any evolution in demand or decision-making at this stage, which means demand remains strong and decision cycles continue to be pretty fast. However, we have the agility to react. Our portfolio is broad and agile. We expect growth to accelerate in sustainability, in energy and utilities, as well as in cybersecurity and sovereignty, where we increased our investments. In addition, we have strong and upgraded defensive offering around cost reduction, both in outsourcing and consolidation. On the margin side, our agility continues to increase. We can count on higher level of industrialization. We also develop a value-oriented portfolio as opposed to pure capability-driven one. We will increasingly benefit from the savings and the efficiency of our new normal operating model.
We remain convinced that the structural demand for digital transformation will weather a potential downturn. However, would the environment significantly change, we are committed to demonstrate the ever-increasing resilience of the group, and we certainly aim at over-performing again. As I mentioned, sustainability is a strong growth platform for the group. This being further amplified by the increasing market demand we experience these days in terms of energy efficiency, circular economy, and renewable energy. The portfolio expansion is happening at full speed with strong recognition from analysts. We have today seven sustainability offerings live. This will double by the end of the year, and we see an appetite for our industry-specific plug-and-play offerings. The business acceleration in H1 was very good, with a lot of traction coming from Europe. Clients in energy, manufacturing, and consumer products and retail are leading the way.
The deal sizes remain still modest, but proliferating like digital five years ago. In this nascent market, we signed several multimillion euro deals in the first half, including a fairly large one. We are fully committed to sustainability. All our 350,000 employees will be upskilled by mid-2023 through our virtual sustainability campus. We are proud of becoming one of the first companies in the world to have its net-zero targets validated against the new and more demanding SBTi standards. This is an elevation of our ambitions, and it's supported by initiatives such as our new energy command center in India, which uses digitalization and data to reduce by 20% our energy consumption across all our campuses. That's a good showcase actually for our clients. We are fully committed to fighting climate change while making a significant business opportunity.
The strong performance in H1 and the excellent dynamic in Q2 demonstrate the relevance of our strategy and our execution discipline. Based on the strong results and perspectives supported by our bookings pipeline, but also the discussion with clients, we are positive about 2022. We are raising our consult revenue growth guidance to 14%-15% versus 8%-10% previously, including around 1.5% contribution from acquisition. The low end of the guidance allow for some softness in the environment in Q4. We confirm our operating margin target between 12.9% and 13.1%, and our organic free cash flow target above EUR 1.7 billion. Thank you very much for your attention, and I now leave the floor to Olivier, our COO, for an update about clients and market.
Thank you, Aiman. I am also very proud of our excellent H1 sales and revenue growth, and also of our promising pipeline. We are definitively reaping the benefits of our clear go-to-market strategy, which is now delivering at full speed. We presented to you this focused go-to-market strategy during the Capital Markets Day last year. What are we doing? Within each of the sectors listed here, we've selected industries in which we build distinctive capabilities and offerings. For each of those industries, we have also selected priority iconic clients with the ambition to become their strategic partner, not only in volume, although we track that as well, but also in relevance and intimacy across the CXO level. With these clients, we are proactively shaping large end-to-end transformation deals to deliver impactful business value, supporting their growth, cost takeout or innovation agendas.
Those landmark references then fuel our expansion throughout each selected industry. For the group, this results in an increasing number of large clients, in higher win rates, in greater resilience, and further industry relevance. We see strong results on a promising pipeline across all of our priorities, which confirms the relevance of our positioning as Aiman said. More specifically, I would like to call out expected good news. We clearly see that when we combine our digital and engineering capabilities to deliver our unique Intelligent Industry value proposition, it's a real hit. In Europe, of course, and even more so in the U.S. Our momentum is visible in all our sectors with double-digit growth in nearly all of them. Let me call out a couple.
In manufacturing, it would be the automotive industry, aerospace and defense industry or life sciences industry, clearly is the largest contributor to our top-line acceleration in H1. Financial services also accelerated throughout H1, notably led by North America. Consumer goods and retail proved to be very dynamic across all regions. I would like also to comment a few examples of these, which demonstrate how we deliver strong business value to our clients across all of our priorities. I would like to call out three of them to illustrate the relevance of our value proposition. First, Fresenius. We have signed a multi-year cloud transformation and outsourcing deal with this leading life sciences company. This one is a multi-hundred million euro deal.
Second, for a U.K. bank, at the crossroads of our data and sustainability offerings, we were selected to participate in the development and management of an ESG data store to measure and track financed CO2 emissions. This is, of course, a strategic project with high visibility at the C-suites. Finally, an Intelligent Industry and emblematic example for Tier 1 automotive supplier in North America. This large multi-year deal is focused on the development and testing of a digital cockpit system, which is a strategic priority for this client. Here again, our engineering capabilities, coupled with a strong expertise in automotive and digital, were instrumental to winning this deal. In summary, our focused go-to-market strategy is delivering strongly. Looking at our sales pipeline, this virtuous cycle should go on. Thank you very much for your attention.
Now I leave the floor to Carole, our group CFO, to go through our detailed financial results.
Thank you, Olivier, and good evening or good afternoon, everyone. Let me now walk you through the financial highlights of our H1 results. Group revenues reached EUR 10,688 million in H1, a reported growth of 22.7% and 18.5% at constant currency. Our operating margins stand at EUR 1,301 million, or 12.2% of revenues, up by 20 basis points year on year. After the other operating expenses, financial and tax expenses, which I will further comment in a moment, the net profit for H1 reached EUR 667 million, up 50% year on year. The normalized EPS, as adjusted for transitional tax impact, reaches EUR 5.03, up 29% year on year.
Finally, we delivered in H1 a solid organic free cash flow of EUR 193 million, in line with our roadmap for the full year. Let's have a look now at our quarterly revenues. Organic growth reached 18.1% in Q2, a further acceleration on the Q1, which was already strong. This brings our H1 organic growth to 17.2%. Taking into account the group scope impact, the constant currency growth reached 19.3% in Q2 and 18.5% in the first half. FX remained a strong tailwind this quarter, leading to a 4.2 positive impact overall in H1 due to the strengthening of most currencies against the euro. Finally, our reported growth in Q2 and H1 reached 24.4% and 22.7% respectively.
For the full year 2022, the M&A should contribute to around 1.5 points to our growth, while we expect FX to represent a tailwind, possibly approaching 4 points. Moving on to revenues by regions. All group regions reported strong double-digit constant currency growth rates in H1 2022, confirming the acceleration already observed in the first quarter. This growth was fueled by strong momentum in almost all the group sectors, as already explained by Olivier. More specifically, at constant currencies, the United Kingdom and Ireland region posted remarkable growth of 22.7% at constant exchange rates, boosted by a strong public sector, but also by the consumer goods and retail and energy and utility sectors, which were very dynamic. The North America and Rest of Europe regions grew by 16.8% and 16.9% respectively.
Here again, sector traction was broad-based, notably to the manufacturing sector, but also financial services in North America and consumer goods and retail in Rest of Europe. France reported revenue growth of 12.8%, thanks notably to a robust momentum in the manufacturing and consumer goods and retail sectors. Lastly, revenues in the Asia Pacific and Latin America region increased sharply by 41.5%. The contribution of group acquisition in 2021 came on top of a strong organic momentum, notably in the manufacturing and financial services sector. Considering now revenues by business line. All group business lines also reported robust double-digit constant currency growth rates in H1 2022.
Both Strategy and Transformation and Application and Technology Services continued to benefit from broad-based demand for digital transformation, posting growth in total revenues of 29.7% and 21.1% respectively. Operations and Engineering Services, 29% of group revenues, grew at 13.4%, reflecting strong growth in engineering services as well as in Cloud Infrastructure Services. Moving now to the headcount evolution. Our total headcount reached 352,100 employees at the end of H1, up 22% year-on-year. The offshore leverage reached 59% at the end of June, up by 3 points year-on-year with visible progress in continental Europe. Finally, the last twelve months attrition reached 27% in H1.
However, quarterly attrition rates have now stabilized over the last three quarters, so it should become visible in the reported last 12 months figures sometime in H2. Now moving to our operating margin by regions. In North America, our operating margin is slightly down by 20 basis points year-on-year, but still well above group average. The operating margin of U.K. and Ireland reached a record level of 18.4% in H1 compared to 17.6% a year earlier. The rest of Europe region reported a lower operating margin compared to the same period last year at 9.8% versus 11.5% on the back of some non-recurring items. The Latin America and Asia Pacific region is also experiencing a lower operating margin than in H1 last year, down to 9.7% versus 12.5%.
Lastly, I'm pleased to report that France delivered a marked improvement of its operating margin, which rose by 3.2 points year-on-year to reach 10.7%. Moving now on to the analysis of our operating margin. As anticipated, our price and mix strategy is more than offsetting the higher cost of growing and training talents in this environment. After taking into account the return of some costs avoided during the COVID, the gross margin is down by only 10 basis points. Our additional investments in sales and marketing are more than compensated by the operating leverage on the G&A. Overall, the operating margin increased by 20 basis points in H1, which is consistent with the 0-20 basis points improvement targeted for the full year. Moving on to the next slide.
Net financial expenses are noticeably down to EUR 71 million in H1 2022 compared to EUR 85 million for the same period last year. Income tax expenses increased to, from EUR 382 million in H1 last year to EUR 327 million in H1 2022. This amount includes exceptional tax expenses for EUR 29 million compared to EUR 56 million last year. Sitting aside the transitional item, our effective tax rate is down to 29.9% in line with what should be our normality ETR in the medium term. Let's now turn to the recap of our P&L from the operating margin to the net income. The other operating income and expenses are almost stable year on year at EUR 333 million.
Our operating profit is up by 32% to EUR 1,068 million, or 10% of our revenues. After financial expenses and taxes, our net profit amounts to EUR 667 million, up 50% from the same period last year. Consequently, the basic EPS stands at EUR 3.91, up 49% year-on-year. The normalized EPS is up 29% to EUR 5.03 excluding the exceptional tax expenses previously discussed. Finally, a word on the evolution of our organic free cash flow and net debt. In H1 this year, we have two specific working capital items at play. First, as discussed in last February, the reverse effect of the big positive impact we had in fiscal year 2021. Second, the additional working capital required by our record 23% reported growth.
Therefore, our H1 underlying free cash flow, which stands at around EUR 50 million excluding our factoring program, is a strong achievement which supports our full year outlook of EUR 1.7 billion. We closed a limited number of M&A transaction in H1, leading to a net cash outflow of EUR 34 million. Return to shareholders reached EUR 926 million in H1, of which EUR 409 million for 2021 dividend and EUR 517 million for share buybacks. Given the sustainability of our cash flow generation, our Net Debt stands at EUR 4.1 billion at the end of H1 compared to EUR 4.8 billion a year ago and EUR 3.2 billion at the end of 2021. Aiman, back to you for some closing words.
Thank you, Carole. These strong H1 results really illustrate the relevance of our strategy and market positioning, supported by strong structural demand for digital transformation. Thanks to our unique combination of strengths, discipline in execution and agility, we are resilient and confident for the future. We are raising our growth targets while confirming our operating margin and free cash flow outlook. Thank you very much for your attention. Now I'm happy to answer some of your questions. I would ask that you keep it to one question, please, and then one follow-up, to allow as many participants as possible to ask questions. Operator, would you please provide instructions for the Q&A?
Ladies and gentlemen, if you wish to ask a question, please press zero one on your telephone keypad. Thank you. The first question comes from Mohammed Moawalla from Goldman Sachs. Please go ahead.
Good afternoon, good evening, Aiman, Charles, and Olivier. Congrats on the strong results. I'll stick to your request and ask one question. When I look at this organic growth in this quarter, it is now very close to what Accenture was doing. I think it's around about 20%. This is obviously multiples of where the industry's growing. When you think forward, and obviously you're still investing to grow, how should we think of sort of Capgemini in the sort of, you know, economic slowdown that people are talking about? You've talked about the kind of resiliency, but you know, in the past, organic growth has sort of turned negative, but the trend line, you're growing far above the trend line.
How should we think about, the resilience of this growth, and more importantly, the sustainability? If you could walk us through some of the factors, that would be great. Thank you.
Sure. Listen, I think the growth is much more resilient. I think it's important to remember, you know, if I go 10 years ago, 90% was probably driven by the CIO. Today, we work across the value chain. The CIO is seen more as potentially a call center sometimes. Yes, in a case of a downturn, there might be more of a squeeze there. A lot of our revenue is generated outside of that. I do believe there'll be a lot more resilience. I do believe we'll continue to grow positively, you know, in a downturn. If it's very pronounced for many years, it's a different story. For me, a downturn like you would expect for the moment, we expect to continue to grow from a top line.
Why? Because it's broad-based demand in terms of technology services. The fact that we have an increasing percentage of investment of company, which is going tech-technology, and we are well-positioned to take a big market share of that, as you see today. That gives us a lot more confidence, and I think you have part of the answer. We're starting from a much higher top line, so when we slow down, I think we'll remain positive.
If I could follow up in positive, you obviously have your kind of midterm growth guidance. I mean, would it be fair to say that it would be meaningful, not meaningfully off that sort of midterm objective?
Again, sorry. Can you repeat?
When you have the sort of 7%-9% midterm guidance.
Yes.
Do you think it's sort of 5%-7%, I think, on an organic basis. Do you think that that's sort of a reasonable proxy in terms of being able to kinda deliver within that, even absorbing kind of economic slowdown?
No, I mean, first, I'll just clarify. For the most part, the 7%-9%, as we put as mid-term guidance, is in constant currency. It was necessary as organic, but I understand the fact that we try to push it to organic now. No, listen, I would not give a number at this stage. I think, you know, in a downturn, yes, we could probably be at the bottom end of that, depending on how high the downturn is.
Great. Thank you.
Thank you.
Thank you. The next question comes from Varun Rajavanshi from JP Morgan.
Hi, good evening. Thanks for letting me on. You talked about increasing your market share. Can you comment on which areas you're gaining share and who are you winning against?
Simply winning against competition. I cannot tell you which is all the competition. We compete with everybody, so if you're gaining market share overall, we're growing fast. We're not the only one to grow fast. If you look compared to the overall market, we are growing much faster than the market. That mean we have to be gaining market share. From a, you know, where we're winning in, I think we're winning with our value proposition. We're winning in Intelligent Industry. We're winning on the customer front end with, you know, our offering driven by Frog around innovation. We're winning Enterprise Management. You know, we have a very advanced and global offering around things like, you know, the SAP S/4HANA, you know, core management. We are very good at it, and I think we are today deploying very large programs globally.
We're gaining market share around data. You know, our data business is growing at 40% in the first half. Cloud and cloud-driven transformation is also growing extremely fast. You know, we have the positioning from a technology and business offerings to really help our client drive the digital transformation. That's so a lot of it is new. It's not just about, you know, traditional offerings. There's a lot of new areas in which we are working.
Thanks for that. If I can just follow up on the overall demand environment. You know, even previously, you talked about tracking leading indicators as a gauge for, you know, the overall demand environment. Can you provide us an update on where we are today with these leading indicators, such as decision cycles, development of sales pipeline, et c.?
Yeah. I'll let Olivier answer this one.
Yeah. Yeah. Of course we are scrutinizing tightly those client decision cycles elements. Frankly, we've been doing that since the COVID every quarter. Frankly, we don't see a ny difference at this point, meaning the decision cycles. Look at our Q2 closing. I mean, our Q2 closing was extremely strong, and fortunately clients decided on time. We don't see a change there.
No change in demand.
If I compare to the last quarters, we don't see a change at this point.
Yeah, no change in demand. You can see the traction on our Strategy and Transformation, which is one of the leading indicator. To frame the forecast, we look at it at Q3, and the rest of the year looks extremely strong still. The pipeline is good. Pipeline is very good. We still have a lot of deals, which will be under decision in Q3.
Thanks for the color.
Thank you.
Thank you.
The next question comes from Laurent Daure from Kepler Cheuvreux. Please go ahead.
Yes, thank you. Good evening, Aiman, Olivier, and Carole, and congratulations on my end as well. My question is also on the visibility you have for the rest of the year. I mean, your guidance is implying roughly 10% organic growth, I think, for the second part of the year. Another way to look at it would be the ongoing contract and the bookings you already have. How much of this target is already covered, and how is it comparing to last year? I have a follow-up.
Listen, I mean, we feel comfortable about the thing. You know, our forecasting and our anticipation is pretty good, so we have pretty good visibility for me on the second half of the year. You know, I think our teams are quite confident. As I said, the guidance overall does allow for some softness in Q4. As you imagine, we have pretty good handle on our Q3, and we have room for some softness in Q4. But right now we are extremely comfortable.
Okay. The follow-up is on the gross margin ambition, I think, on the longer term. The idea is still to increase it further. It was pretty stable in the first half. Do you think you will start to see some improvement in the second part of the year, or do we have to wait a little bit more longer?
Okay. Well, I mean, first we'll stick to the yearly guidance on the overall operating margin. Of course, we will continue to try to improve the gross margin. As you know, this is gonna be our biggest pocket in terms of improvement, you know, over the coming years. We're quite confident that the gross margin will continue to increase. Today, we have to absorb some of the additional costs from talent recruitment and the very fast ramp up. You know, I'm quite confident about the potential for improvement of the gross margin over time.
Right. Thank you.
To add maybe on that, Laurent as well. As you can see, our price and mix strategy is more than offsetting significantly higher compensation costs. As just Aiman mentioned, after taking into account the return of some costs like the travel, the gross margin is only down by 10 basis points.
Yes. Thank you.
Thank you. The next question comes from Stefan Slowinski from BNP Paribas. Please go ahead.
Great. Thank you and good evening, Aiman, Carole, Olivier, congrats as well on another strong quarter. As you know, we're always looking for more. Just wondering on the margin front, considering in the past you've said the biggest driver of margin really is the top line. I'm just wondering why you haven't been able to see more operating leverage to increase the full year margin guidance considering the big step up in the full year revenue growth guidance.
First, I would like to correct myself if I ever say that. I don't think I said that the bigger drivers of margin is the top line. Top line helps because provide operating leverage, but at the same time, you have to take into account the fact that we have pretty high salary inflation that we have to deal with in the current environment. I think if you look at a number of our large competitors, a number of them have seen pretty big erosion year-over-year in their operating margin. I think our performance is pretty good on that front.
The fact that we have been able to resist, you know, in the current environment with some of the COVID costs coming back and some of the the high salary inflation shows we're actually able to increase prices and we're able to go further up in terms of value. If not, we'd have seen an erosion in margin. I remain pretty confident around the trajectory on the margin. The fact that bit by bit as some of these factors that have been kind of preventing a bit the acceleration of the margin start to fade away, the margin acceleration will come back.
Understood. Just a follow-up there around that kind of hiring market and wage inflation. Obviously, yes, some others have seen that pressure. Just wondering if that's starting to cool. We've seen a lot of tech companies slowing hiring or even announcing layoffs. I know that's maybe not the direct competition for you in terms of hiring, but are you already starting to see that the hiring is getting easier and there's not as much pressure on wages as there was, let's say, three months ago?
Listen, we're able to see the people. We have to hire the people that we want. There is still higher level of attrition than we would like, but it's starting to come down. I think it will take a few quarters for it to be really cool off. We are confident that the trajectory is in the right direction, from that perspective. You know, the high level of demand in the market overall is still there, so it's still a challenging market on the talent, you know, for probably the foreseeable future. We have a very strong brand. Our ability to attract is extremely good. We're really able to attract very top talent. As I say, we expect things to cool off bit by bit.
Got it. Thank you, Aiman.
Thank you. The next question comes from Adam Wood from Morgan Stanley. Please go ahead.
Hi. Good evening. Thanks for taking the question, and also, congratulations to me on such a strong quarter. My question is just around this cycle because it feels an unusual one that, you know, you're obviously seeing this incredibly strong demand in the market and hiring, you know, very aggressively to manage the attrition and to manage the demand that you have. At the same time, we're all talking about slowdown next year. One of the ways I think you manage margins in the past is to try to preempt those slowdowns and calm things down ahead of time.
Could you just talk a little bit about how you think about that as we look into the second half of the year, balancing that need for investment versus trying to manage and preempt what could happen next year and how quickly you can respond to it, please? Thank you.
Listen, I think we have a pretty high level of agility, as I tried to explain, you know, a bit earlier. We have a lot of levers to work on today. First, you know, our level of industrialization is extremely high, with a high leverage, you know. It gives us a lot of flexibility around the resources. Remember as well with the attrition, you know, that we embrace, that is still pretty high. We can flex quite a bit our resource pool as we see slowdown coming, if we see it coming, for the moment we don't. We have levers in terms of optimization of utilization. You know, when you're growing very fast, you're investing a lot around talent, around recruitment, around training, around shadowing on contracts.
You know, I think we have quite a few levers that makes me quite comfortable about the resilience of the margin in the downturn. We're not gonna over-anticipate, you know. I'm not gonna kill the growth if we see growth by basically stopping recruitment. I don't think it would be wise. On the other side, we have very detailed, basically, information coming up to see if there is a slowdown coming and when we need to start, you know, putting the tap on recruitment. I have to say for the moment, you know, we don't see these signs. We know how to react quickly if it start to come.
Thank you. That's helpful. Maybe just a quick follow-up. You mentioned utilization rates, they've come down a little bit. I guess that's just a combination of the high attrition and the pace of hiring. Is there anything else I'm missing on utilization there?
No, no. I mean, this is it. Of course, you know, when you have a bit. If things are a little bit slow, you're able to optimize more utilization. Right now, if you want to fuel the growth that we have, you have to hire a lot, and you have to train a lot. That takes, you know, transition time and shadowing on contracts, et cetera. That of course will drop utilization, but that's what helping you fuel such high growth.
Perfect. Thank you very much.
Thank you. The next question comes from Amit Harchandani from Citi. Please go ahead.
Thank you. Good afternoon, good evening. Amit Harchandani from Citi. A question and then a follow-up, if I may. My question goes to the pace of headcount addition that we have seen from your side and how that correlates with the level of organic growth. You have done 20% year-on-year headcount growth last year. That's accelerated to 22% in the first half of this year. Against that, of course, you're now telling us around 12.5%-13.5% organic growth for this year.
Is it fair for us to assume that as we look at the pace of headcount growth in H1, we could expect a similar-ish pace and maybe a smaller slowdown going into H2, which then bodes very positively in terms of how we think about organic growth, potentially again, double digit ballpark going into next year? If you could talk about the correlation between headcount and organic growth. I have a follow-up.
There's one thing that we shouldn't miss in the headcount. Headcount is volume. You also have to look at where the growth is. You know, we have higher growth in offshore, so you're seeing the leverage continues to increase. Of course, you know, the mix of revenue changes as you increase your offshore mix in terms of revenue per headcount. That definitely makes it a bit of the correlation between headcount growth and revenue growth. As you know, you know, I did state when we did the full year result that headcount growth to grow by 10% this year. I definitely was wrong, so I'm not gonna go into that route again to try to predict, you know, what would be kind of pace of headcount growth.
Right now we continue to recruit because we continue to show the growth right now. Of course, what we have embarked on is to help us deliver our H2, and we will continue to basically grow headcount at the pace where we see the demand coming and the potential growth. We'll fine-tune that. I mean, to be frank, it's almost weekly or monthly fine-tuning, depending on which operation it is in terms of the plan of headcount. And that's really linked to what we see in terms of growth.
Thank you very much.
Difficult to give a forecast on that.
Thank you. As a follow-up, if I may, you have raised your revenue guidance, kept the margin guidance unchanged, which implies greater EBIT or operating profit and currency is turning to be a bit of a tailwind. What stops you then from raising the free cash flow guidance? Because mathematically it does seem that you should probably be trending above EUR 1,800 instead of EUR 1,700. Thank you.
Yeah. Sure. Okay.
On that point, Amit, it's really the funding of the growth. As you have seen, you know, already in H1, it's a good problem to have of course. You know, having some working capital needs because of the 23% increase of our reported growth is a nice problem to have.
Yeah, I think I'd add to that, and Olivier maybe can testify to that as well. There start to be a little bit more tension on the cash, you know, with clients than it was four months ago, when the rates were negative. We cannot ignore that, and we are careful. We're careful on that front. It's just. It's nothing dramatic, but definitely there's a bit more tension.
Thank you for the insight.
Thank you. The next question comes from Charles Brennan from Jefferies. Please go ahead.
Thanks. Good evening, everyone, and congratulations from me. It's obviously a great set of numbers. There have been a number of high-level questions, so I'll try a couple of detailed financial ones if I can. Firstly, I don't think I can ever remember Cap calling out receivables factoring on a results call before. Can you just size the magnitude of your factoring program in H1, relative to last year, and how you expect that to evolve in the second half? Given the strength of your balance sheet, why did you feel the need to do factoring? Secondly, if I look at the detail of the cost breakdown, it looks like higher travel costs have broadly been paid for by flat depreciation.
Can you just explain why depreciation is flat given the growth in the business? Thank you.
On the first point, you know, factoring is relatively a lower level of, among given the size and the materiality at group level. It's really a very low level of factoring, and we have always disclosed the amount of factoring in our financial statement, so that's not an exception. Anyway, I mean, it's not gonna be increased anyhow when we don't do any improvement mid-term of our, you know, cash flow conversions with factoring. That's not what we intend to do. EUR 150 million is really a good balance, a good deal in this context. It's something quite natural and very insignificant with the level and the size of.
Travel cost.
On higher travel costs, indeed, travel costs have moved up to 1% of revenues, which is up 0.1-0.5% compared to the same period last year. Prior to pre-COVID level, it was 4%. We don't expect any further impact of our travel on our operating margin in 2023. That's true that the return of some travel costs this year as expected, and we disclosed that at the beginning of the year. There's the return of some costs.
Yeah. On depreciation, you know, we don't have a lot of things. I mean, we're not currently, you know, with limited return to office, we're not expanding office space. So that's one of the reasons that you don't see an increase around some of the depreciation items.
Perfect. That makes sense. Thank you.
Thank you. The next question comes from Frederic Boulan from Bank of America. Please go ahead.
Hi. Good evening, Aiman, Carole, and Olivier. Thanks for taking the question. It's hard to pick any holes in terms of demand per sector. Do you see any change in demand from companies, any type of project that are required versus what was on the roadmap 12 months ago? Any particular industries where you do anticipate a bit more pressure than others? I've got a quick follow-up.
Listen, I mean, you know, we honestly ask ourselves the same question you ask, right? We try to read through the list to try to see if we can find something that. We really don't see it. I mean, look at the consumer packaged goods retail and distribution. It's growing at above 20%. It's consumer sensitive. You could expect that it will start to slow down. We don't see. Look at the manufacturing sector. I mean, we have a huge recovery in aerospace. Automotive is growing above double-digit, or you could say now with production. Why? Because you have to remember, there's an increasing amount of investment going to technology. So even if some companies are slowing down, the spend on technology is an increasing part of their cost base in a certain way.
You know, they spend more on in technology than on other things. This is growing at the same time that other thing might be slowing down. It's not in technology that the spend is being cut. That's why I believe we don't see any movement for the moment. Frankly, I've read a number of CEO surveys which talk more about how to invest more around digital and technology, not how they're gonna cut it. Because today it's a huge driver for the top line, for the relationship, you know, with clients, for developing new products. We get involved more and more with our clients on how we're gonna enable them actually create more value and sell more to their clients and improve their value proposition.
We are at the front end of how they're gonna increase profit and growth. That's where I see we continue to see that increasing the demand, and that's across sectors.
Great. Thank you. Very quick one for Carole. After the EUR 800 million working cap n egative in H1, what should we assume going forward? What have you embedded in your EUR 1.7 billion guidance for the year, cash guidance?
We have indeed a EUR 800 million negative impact of working capital in H1, but this compares to EUR 500 million for the H1, the prior pre-COVID years. If you recall, with only EUR 133 million in H1 last year, 2021 was a clear outlier, as we discussed back in February this year. This is linked to two elements that we described. One is the reverse impact related to the employee bonuses, and the second is the additional working capital required by our growth, our great growth.
Okay, thank you.
Thank you.
Definitely the seasonality of cash flow will play again here because the working cap tends to improve in H2. Okay.
Thanks.
Thank you. The next question comes from Michael Briest from UBS. Please go ahead.
Yes. Thanks. Good evening, and add my congratulations. Just in terms of the margin profile, I can't recall such a wide variance in trends by region for some time. Aiman, I think you said offshore adoption's growing in Europe, but the sort of rest of Europe margin's down nearly 200 basis points and France is up 300 basis points. Can you talk a bit about what's driving that divergence of margin trends?
Indeed, if you take, you know, the uplift of the margin in France, it's so satisfactory at more than three points on the back of several elements, notably the recovery of some sectors that were mostly affected during the COVID crisis. It's the pace of recovery is going very well. On the rest of Europe front, it's only due to some non-recurring items. No specific, you know, underlying trends there. Nothing negative to say on the underlying trends in the rest of Europe region.
Okay. There's a follow-up.
Okay. I'm not gonna waste my follow-up on what were those underlying non-recurring items. Can you say something then, Aiman. Look, with most of your peers, they've either raised their revenue guidance and missed on margins or they've missed on revenues and raised, you know, kept margins. You've managed to keep margin guidance and raise the top line. What's different about Cap? Maybe this is something about the history of the company, more European, less offshore mix of business. I don't know. Can you say why you think you're seeing, you know, executing frankly better than the competition?
I think it's a bit of things. I think we have been anticipating some of that, and we have been able to manage them. Probably the mix of where the cost base is might be playing into that, definitely. We have a number of levers. You know, we did expose a number of levers at the CMD, and we are applying them. We worked very hard on the margin. You know, I've been working many years on the margin, very hard, and it's bit after bit. That's really what is increasing more and more our resilience. We know very well our economic model, where the levers are, how to act on them.
We have, I think, very high execution discipline in the firm, and that has created a culture of really fighting for every penny of margin. I told you we push, we pushed on prices, we pushed on the value of the offerings to get out of the commodity space. It's paying off. It's paying off in better pricing and in we're able to maintain our sold client margin or even increase them a little bit. We show that the quality of the portfolio is very good even in an environment like that.
Okay. Thank you.
Thank you, Michael. That was the last question. Thank you very much all, and we probably talk to you in the coming days, weeks. Thank you very much and have a great afternoon or great evening.
Bye-bye.
Bye. Thank you.
Ladies and gentlemen, this concludes today's conference call. Thank you all for your participation. You may now disconnect your lines.